[the peRFormaNce of CAPM and ABT in the period 1885-1925]
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This study deals with the performance of Capital Asset Pricing Model and its anomalies in Capital Market of Holland. CAPM is a financing Model used to evaluate the value of market portfolios by examining the relating systemic risk and the expected return. In actuality, the theory divides risk into two categories of risk, systemic and specific. Although, the capital asset pricing Model only reimburses investors for the systemic risk of the holding a portfolio since specific risk can be diversified away. Risk in the capital asset pricing Model is assumed as wanting to be avoided but if risk is accepted then investors expect to be rewarded, called risk premium. In addition to the risk premium paid to the investor, he or she will also be rewarded the risk free return rate. The first Part of the study deals with the basic definition, advantages and application of CAPM. CAPM is tool used for risk return analysis. It helps to know the Company's Cost of capital. In the first part of the study CAPM calculation, CML, SML etc has been explained. In the second chapter the literary review about capital asset pricing Model is stated. CAPM is based on Markowitz Modern portfolio theory. Various other scholars gave their own analysis for CAPM Model. Like Fama modified CAPM and gave an alternative version called CCAPM which is Conditional Capital Asset Pricing Model. The attraction of the CAPM is that it offers powerful and intuitively pleasing predictions about how to measure risk and the relation between expected return and risk. Unfortunately, the empirical record of the Model is poor—poor enough to invalidate the way it is used in applications. The CAPM's empirical problems may reflect theoretical failings, the result of many simplifying assumptions. But they may also be caused by difficulties in implementing valid tests of the Model In the third chapter Alternative Model is described and a comparison between Arbitrage Pricing Model and Captial Asset Pricing Model.
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION1
Assumption of CAPM2
Beta and Standard Deviation3
Risk Free Assets4
Objectives of the study4
Significance of the Study5
CHAPTER 2: LITERATURE REVIEW6
Asset Pricing Models6
Understanding Risk and Return8
The Pricing of Individual Assets and the Risk-Free Rate12
Stochastic Discount Factors and Risk Premiums13
Systematic and Unsystematic Risk18
The Capital Asset Pricing Model (CAPM)19
The Intertemporal CAPM25
The Empirical Performance of Asset Pricing Models28
CHAPTER 3: METHODOLOGY34
CHAPTER 4: RESULTS AND ANALYSIS42
CHAPTER 5: CONCLUSION52
CHAPTER 1: INTRODUCTION
The CAPM was developed in the mid 1960's. The model has generally been attributed to William Sharpe, but John Lintner and Jan Massin also ...